Firms join forces to secure position in growing retail power market

Companies expected to announce plans in household sector as of fall

The state-owned Public Power Corporation (PPC) is bracing for the entry of joint ventures into the retail segment. Increased power tariffs have helped make the sector more attractive, according to industry sources, but more changes are needed to boost competitiveness.

Partnerships between leading European power companies and Greek firms have been taking shape recently as the new entrants to the country’s fast-growing electricity market prepare to enter the retail segment.

The latest joint venture announced was the teaming up earlier this month of Greece’s largest oil refinery, Hellenic Petroleum (ELPE), with Italy’s Edison, the neighboring country’s second-largest electricity producer and gas distributor.

The two companies promised to change the energy landscape by becoming the country’s second-largest power producer, after the state-owned Public Power Corporation (PPC), in their pursuit of investments in the broader sector.

In a press conference held to publicize details of the agreement, the company announced it aims to develop a 1,500-2,000-megawatt energy portfolio in the next five years.

It already has an advantage over its competitors, as ELPE will contribute its existing 390 MW energy plant in Thessaloniki to the joint venture, while Edison will hand over its 65 percent stake in central Greece’s Thisvi power plant, planned for completion by 2010.

Sources said that the head of Edison, Umberto Quadrino, and senior ELPE officials later met with Development Minister Christos Folias and announced their intentions to tap the retail, or household market.

Despite adverse international conditions and a slowing global economy, which is also weighing on Greek economic growth, the power industry remains an attractive investment option.

It is also one of the few sectors in Greece that is currently drawing strong interest from foreign investors.

Greece’s electricity demand grew by 50 percent in the last decade, according the US Energy Department.

The nation needs to increase capacity by another 50 percent, or 6,000 MW, to guarantee supply through 2015, according to the energy regulatory authority.

Rising demand every summer – the year’s peak period – stretches the power system to its limit, forcing the government to import electricity from neighboring countries such as Turkey and Bulgaria.

Recent price hikes to power bills have helped widen electricity profit margins.

As of this month, electricity bills went up by 7 percent for homeowners and 10 percent for businesses in the third price hike in the last 12 months.

The initial market segment to be targeted by the new entrants is expected to be households that consume more than 4,000 kilowatts annually and commercial customers such as factory plants – sectors of the market which saw the smallest price hikes this month, as PPC realizes that they will be the easiest to lose to the competition.

PPC is 51 percent-owned by the state and its prices are set by the government.

Market sources, however, point out that further changes to the sector are needed.

Changes such as hooking up the electricity grid system on the country’s islands with mainland Greece and updating the network used by PPC will make the sector more attractive and cost efficient.

Requiring PPC to providing more information on household bills, listing its costs versus competitor’s costs is seen as another step the government can take to open up the market.

The other joint venture with an eye on the retail segment is Endesa Hellas, which is preparing to launch its own household operations in the fall, according to sources.

Endesa Hellas, a joint venture of Spanish utility Endesa and Greek engineering group Mytilineos, plans to build its third power station in Greece by 2010. It also plans to build two more coal-fired plants, aiming at a 16 percent share of the total produced energy in Greece by 2015.